Prime Drops To Eight-year Low Major Banks Cut Interest Rate To 8.5%

April 22, 1986|By John G. Edwards, Business Writer

Major banks on Monday cut the prime interest rate from 9 percent to 8.5 percent, the lowest in almost eight years.

The prime rate, which banks charge their best commercial customers on short- term 90-day loans, fell in response to depressed oil prices, the sluggish economy and actions by the Federal Reserve Board, economists said.

The Federal Reserve on Friday cut the discount rate it charges member banks for loans to 6.5 percent from 7 percent.

``Declining oil prices have made inflation a minor concern with the Fed,`` said Sun Banks spokesman Ted Rybicki.

``That`s been the driving force in bring inflation down and therefore interest rates down,`` agreed Merrill Blanksteen, chief economist for AmeriFirst Federal. ``Slowness of the economy is another factor.``

The last time the prime was this low was in June 1978, shortly before raging inflation pushed rates up into the double digits, Blanksteen said. The prime hit a high of 21.5 percent in December 1980.

He predicted stable or slightly lower rates for the next six months. Then the economy will rebound and rates will edge up in response to increased demand for credit, Blanksteen said.

John Godfrey, chief economist for Jacksonville-based Barnett Banks, expected no further declines in the prime.

Longer term rates, including installment loans for autos and home mortgages, will continue to dip, he predicted. ``Longer term rates move slower than short-term rates,`` Godfrey explained.

New York-based Chase Manhattan Bank, the nation`s third largest bank, led the charge to the lower prime rate Monday. Others soon did the same, including regional financial institutions in Florida including AmeriFirst, Sun Banks and Barnett.